Apple has done it again: For all the concerns about China, the consumer tech giant responded with strong strikes, sending its shares up 6% in after-hours trading. That's why we own it. That's why we don't trade it. Apple's fiscal first-quarter revenue was $90.75 billion, down 4% from a year ago but ahead of LSEG estimates of $90.01 billion. Earnings per share rose 1% to $1.53, a record high for the March quarter, and beat LSEG estimates of $1.50. Gross margin was 46.6%, up 230 basis points from last year and in line with expectations. (One hundred basis points equals one percentage point). Apple Why we own it: Apple's dominant hardware and growing service businesses provide a deep competitive moat and plenty of bundling opportunities. A net cash neutral management strategy provides confidence that free cash flow will continue to fund dividends and buybacks. Additionally, the company's commitment to customer experience has translated into industry-leading user loyalty scores, giving it pricing power. There's a reason it's one of only two “own, don't trade” stocks in the portfolio. Competitors: Last Purchased: April 8, 2014 Started: December 2, 2013 The Bottom Line There was a lot to like in Thursday's quarterly results. Top of the list: The consumer technology giant achieved another record for its installed base of active devices, across all geographies and product categories – helping to achieve another record high margins and recurring revenue from its services business. We were also very pleased to see sales in Greater China come in better than expected, especially given its sluggish economy and Wall Street's unwillingness to give companies a pass on lost sales in the region. Growth was still negative compared to last year, but the iPhone led a sequential acceleration in the region and took the top two spots for best-selling smartphones in urban China. Meanwhile, the company set new sales records in Latin America, the Middle East, Canada, India, Spain, Turkey and Indonesia. On top of this strong performance, Apple announced a $110 billion stock buyback authorization, the largest corporate buyback ever. Apple is as strong as ever, and we see positive catalysts ahead. CEO Tim Cook is eager to share the company's AI efforts, and we expect to learn more at WWDC in June. “We are making significant investments and look forward to sharing some very exciting things with our customers soon,” Cook said. “We believe in the transformative power and promise of AI, and believe we have advantages that will set us apart in this new era, including Apple's unique combination of seamless integration between hardware, software and services, Apple's leading processor with our industry-leading neural solutions, and our unwavering focus on privacy. , which supports everything we create.” We couldn't agree more. Think about how much information is on your phone. Apple is in a position to deliver an AI-based personal assistant that's truly personal — and with plenty of privacy guarantees. Given all the positive fundamentals and catalysts, Apple stock deserves to be higher. We therefore raise our price target to $220 from $205. Cash Flow and Capital Allocation Apple generated operating cash flow that was slightly below expectations. However, capital expenditures were also lower than expected. This resulted in stronger-than-expected free cash flow, which is more important than operating cash flow because it's cash that Apple can eventually return to shareholders through buybacks and dividends. Apple exited the quarter with approximately $162 billion in cash, cash equivalents and marketable securities on the balance sheet. After subtracting $105 billion in debt, we are left with a net cash position of about $58 billion. As a reminder, Apple has a policy of remaining net cash neutral over time, meaning that if cash is not used for acquisitions or organic growth investments, it will be returned to shareholders through buybacks and dividends. In this regard, Apple announced a staggering $110 billion stock buyback authorization and raised its quarterly dividend by 4%. Management also plans to continue raising yields annually, as has been the case for the past 12 years. During the aforementioned quarter, Apple paid out more than $27 billion to shareholders, including $3.7 billion in dividends and equivalents and another $23.5 billion through the repurchase of 130 million shares. Quarterly Results Apple's services sales hit another record, offsetting a slight loss in product sales and beating overall revenue and operating income. Products The active device installed base across all products and geographies hit a new record. The decline in iPhone sales was a tough comparison to last year when Covid-related supply chain issues pushed $5 billion in sales from the December 2022 to March quarter. And true to form, iPhone sales have been in line. The iPhone was the best-selling smartphone in the United States and urban areas of China, Australia, the United Kingdom, France, Germany and Japan, CFO Luca Maestri said, citing research firm Kantar. Mac revenue driven by M3 MacBook Air. Half of MacBook Air buyers this quarter were new Mac users. The iPad is still struggling as we get closer to the launch of the M2 iPad Pro and the 10th generation iPad. Half of iPad buyers in the quarter were new iPad users. The wearables, home and accessories sector has been struggling compared to last year, which saw the launch of the second-generation AirPods Pro, Watch SE, and first-generation Watch Ultra. Nearly two-thirds of Apple Watch buyers in the quarter were new to the product, pushing the Apple Watch installed base to a new all-time high. More than half of the Fortune 100 companies have purchased Apple Vision Pro units and are “exploring innovative ways to use them to do things that weren't possible before,” Cook said. “We're seeing a lot of compelling use cases,” Maestri added. “From aircraft engine maintenance training at KLM to real-time team collaboration to scale up a portion to immersive kitchen design at Lowe's. We couldn't be more excited about the private computing opportunity in Enterprise.” Services Record revenue all the time. Record performance in both developed and emerging markets. Sequential gross margin expansion of 180 basis points on better product mix. The standard product's installed base “provides a strong foundation for future growth of the services business as we continue to see increased customer engagement with our ecosystem,” Maestri said. A new high for both transactional and paid accounts, with paid accounts and paid subscriptions increasing double-digit percentage points. Maestri pointed out that Apple now has more than one billion paid subscriptions through services on its platform, more than double the number than it was 4 years ago. June quarter guidance assumes the macroeconomic outlook does not worsen. Revenue is expected to increase by lower percentage points compared to the same period last year, despite a 2.5 percentage point currency headwind. It will exceed Street estimates for growth of 1.5%. Services are expected to grow at a double-digit rate similar to the rate we saw in the first half of the fiscal year. Service revenues for the first half of 2024 are expected to rise by 12.7% compared to the same period last year, beating the Street's estimate of 10.6%. iPad sales are expected to rise by double digits year over year, much better than the 5.9% expected on Wall Street. Operating expenses are expected to range from $14.3 billion to $14.5 billion, in line with estimates of $14.4 billion. (Jim Cramer's Charitable Trust is long AAPL. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim takes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable fund's portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. 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Apple Inc. CEO Tim Cook arrives for the opening ceremony of the new Apple Jing'an store on March 21, 2024 in Shanghai, China.
VCG | China Optical Group | Getty Images
apple It did it again: For all the concerns about China, the consumer tech giant responded with strong strikes, sending its shares up 6% in after-hours trading.
That's why we own it. That's why we don't trade it.
